Measuring the capitalisation impact of off-balance sheet items under the new IFRS 16-based lease accounting in Hungary

Tóth, Árpád (2018) Measuring the capitalisation impact of off-balance sheet items under the new IFRS 16-based lease accounting in Hungary. Hungarian Statistical Review, 1 (1). pp. 91-108. ISSN 2630-9130

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Abstract

This study discusses the application of IFRS (international financial reporting standard) 16 (Leases), effective as of 2019, and its impact on listed entities. The key objective of the relevant changes is to minimise operational lease-related off-balance sheet items, thus increasing IFRS reporting of company liabilities. Given that about 85% of all global lease contracts are estimated to be operational leases, the impact of these changes cannot be overstated. A visual analogy would be an iceberg where, before the changes, only the top can be seen; and after the changes, more of the iceberg will be revealed. In 2016, prior to the issuance of IFRS 16, IASB (International Accounting Standard Board), the standard-setting organisation, prepared an effect analysis based on a sample of 1,022 publicly traded companies (among which there were not any Hungarians). The present value of future payments for off-balance sheet leases for these companies amounted to USD 1.6 trillion. We need data to forecast properly the impact of the changes, and the forecasts should be based on a standard and systematic approach; however, no current statistical data collection covers this area. This study aims to identify a way to collect information. It is found that the required data are already available. This significantly decreases the cost of data collection, helping to prepare forecasts and creating a win-win situation for regulators.

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